China Daily (Hong Kong)
Analysis: Decoupling could trim 1% off US GDP
The United States would forgo $190 billion from its gross domestic product annually by 2025, or roughly 1 percent of its GDP at last year’s level, if it were to fully decouple with China, a scenario that would force the US aviation industry alone to shed up to 225,000 jobs, according to analysis by the US Chamber of Commerce and Rhodium Group.
The projections highlight the potential costs to the US economy at a time when the administration of President Joe Biden is grappling with a pandemic-battered economy and weighing its policy agenda with China.
“If the US and China were to fully decouple, American businesses and our economy would be significantly impacted, resulting in hundreds of billions in foregone GDP and capital gains losses while undermining US productivity and innovation,” the US Chamber said on social media on Thursday about the report released on Wednesday.
The first-of-its-kind study, “Understanding US-China Decoupling: Macro Trends and Industry Impacts”, seeks to better understand the degree to which the US and Chinese economies are intertwined and dependent on each other for stability and growth, the chamber said in a statement.
The report uses a full decoupling scenario, defined as bilateral flows going to zero, because that provides the most complete look at the potential impact of the current trajectory of the US-China economic relationship, according to the authors of the analysis.
A complete disengagement also would significantly curtail investment, people and idea flows, as well as impact key areas of national importance to the US, noted the report.
example, US investors could lose $25 billion annually in capital gains, and one-time GDP losses could reach $500 billion if US companies reduce cumulative foreign direct investment in China by 50 percent.
The COVID-19 pandemic has demonstrated the economic impact from lost Chinese tourism and education spending. If future flows are reduced by half from their pre-pandemic levels, the US would lose between $15 billion and $30 billion a year in service trade exports, according to the analysis.
For the US aviation industry, a loss of access to China, the largest export market for US aircraft, would cause losses of $38 billion to $51 billion and lead to the US civil aviation manufacturing industry shedding 167,000 to 225,000 jobs, according to the report.
“If we were to try to cut off everything, or the preponderance of our economic engagement with China, (it) would be so expensive that it would make everyone, even the most hawkish Americans and national security professionals, very uncomfortable,” Daniel Rosen, founding partner of Rhodium Group, said at a virtual release event for the report.
As US policymakers debate the next phase of US-China engagement, they should consider the major conclusions of the analysis: Data analysis is critical to policymaking, and China policy requires economic-impact assessment, cost-benefit analysis, and a process of public debate and discovery, the chamber and Rhodium Group said in a release.
Chinese Foreign Ministry spokeswoman Hua Chunying said on Friday that the report once again proved that decoupling with China means “decoupling with opportunities, the future and the world”.
China hopes the US side will heed the voices from business communities and people with vision to promote the sound and stable development of China-US trade relations, Hua said.
Biden has said his administration would not handle relations with Beijing “the way Trump did”, and “we’re ready to work with Beijing, when it’s in America’s interest to do so”.
US Treasury Secretary Janet Yellen told CNBC on Thursday that the country will keep tariffs imposed on Chinese goods by the former Donald Trump administration in place for the moment, but will evaluate how to proceed after a thorough review. She added that Washington expected Beijing to adhere to its commitments on trade.
“We hope that the US will correct its wrongdoings and work with China to enhance dialogue and communication, expand economic and trade cooperation and appropriately handle their trade disputes on the basis of mutual respect, equality and mutual benefit,” Hua told reporters at a regular news briefing on Friday.
High and sweeping tariffs are one of the hallmark decoupling policies of the Trump administration. US import tariffs, for example, cover more than 75 percent of aviation-related products imported from China.
“The Biden administration should know that a decoupling strategy is not popular with the EU or other US allies,” said Gary Hufbauer, a senior fellow and trade expert at the Peterson Institute for International Economics.
“From the Rhodium analysis, it should learn that decoupling is not popular with US business and will ensure higher costs and spark inflation in the US,” Hufbauer told China Daily.
In their first phone call last week, President Xi Jinping told Biden that the two sides should reestablish the various dialogue mechanisms and that the economic and other authorities of the two countries should also have more contact.
Hufbauer suggested that trusted interlocutors, possibly Kurt Campbell, the White House’s China coordinator, on the US side, should do what former secretary of state Henry Kissinger did decades ago, and work out a de-escalation path, with the first step being the reciprocal removal or reduction of tariffs.
A Chinese law expert has spoken of the need to improve Hong Kong’s electoral system to ensure the special administrative region is governed by patriots.
Han Dayuan, a professor at Renmin University of China, said that “patriots governing Hong Kong” was a fundamental principle to improve the institutions of “one country, two systems”, safeguard national sovereignty and security, and ensure Hong Kong’s long-term prosperity.
Hong Kong’s electoral system aims to “uphold national unity and territorial integrity, and maintain the prosperity and stability of Hong Kong”, a principle inscribed in the preamble of the Basic Law of the Hong Kong Special Administrative Region, said Han, who is also a member of the HKSAR Basic Law Committee under the National People’s Congress Standing Committee.
The electoral system must stick to the fundamental principle of “patriots governing Hong Kong”, Han said, adding that the root cause of the recent chaos afflicting Hong Kong was the failure to effectively implement this principle.
Noting that Hong Kong’s democratic and electoral systems have some loopholes, the expert called for plugging them at the earliest opportunity.
Some of these flaws were highlighted by Han, including the failure to ensure that all candidates meet certain patriotic criteria — which led to some candidates advocating Hong Kong independence ending up winning elections.
Han also pointed out the inability of the existing electoral system to effectively represent the overall interests of Hong Kong society, and the inadequacy of the elections to reflect the will of the people.
He further pointed out that Hong Kong’s electoral system lacks a proper mechanism to guard against external interference, giving foreign anti-China forces a chance to destabilize Hong Kong and interfere with its democratic development, thus posing a serious latent threat to national security.
Stressing election security as an important foundation for national security, Han said Hong Kong’s electoral system concerns the security of both the HKSAR and the entire country, and it is necessary to ensure patriots enter the governing team through the elections.
If the electoral system is not improved, national security risks cannot be forestalled, posing various risks to Hong Kong’s constitutional order, Han said.
The fundamental purpose of improving the electoral system is to help improve the institutions for “one country, two systems”, maintain Hong Kong’s long-term stability and protect the rights and freedoms of Hong Kong people, he added.
Saturday marks the entry into force of a new international agreement promoting paperless trade, reminding us, once again, of how the COVID19 pandemic has brought digital solutions to regional development challenges into the limelight.
Paperless trade across borders has proven an effective way to mitigate trade disruptions since the pandemic broke out early last year, enabling commerce to continue in spite of limiting physical contact. Yet despite the increasing acceptance of electronic documents across borders, implementation of cross-border paperless trade remains low according to the United Nations Global Survey on Digital and Sustainable Trade Facilitation for Asia and the Pacific.
Therefore, across Asia and the Pacific, governments must move from time-consuming paper-based processes to electronic and traceable trade procedures that can significantly enhance competitiveness and address new challenges associated with e-commerce and the digital economy. In doing so, the AsiaPacific region can also recover some of the $200 billion in illicit financial flows that sharply reduce the capacity of governments to put in place support measures for vulnerable groups.
In May 2016, member states of the UN Economic and Social Commission for Asia and the Pacific adopted the Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia and the Pacific to accelerate trade digitalization — electronic exchange of traderelated data across borders — without leaving anyone behind.
More than 25 countries worked together to prepare the agreement, which is now open for accession to all 53 members of ESCAP. The five countries that have ratified or acceded to the treaty — Azerbaijan, Bangladesh, China, Iran and the Philippines — represent a diverse group of countries spanning the wider Asia-Pacific region but all are
Paperless trade across borders has proven an effective way to mitigate trade disruptions since the pandemic broke out early last year, enabling commerce to continue in spite of limiting physical contact.
committed to regional cooperation in this critical area. Armenia and Cambodia signed the agreement in 2017 while several other ESCAP members are in the process of completing their accession this year, before implementation of the agreement starts in 2022.
But we must do more to realize the transformative potential of trade digitalization.
First, we need to fully use the framework agreement to provide a region-wide multilateral intergovernmental platform, a dedicated space for developing and testing legal and technical cross-border paperless trade solutions that build on national, bilateral, and sub-regional initiatives. The agreement marks the beginning of a new journey, one focused on turning crossborder paperless trade into reality through cooperation, testing, innovation and implementation.
Second, we have to ensure that the framework agreement is a catalyst for those countries that become a party to it to implement key measures featured in the Trade Facilitation Agreement of the World Trade Organization, including “single windows” and other actions requiring the use of information and communication technologies.
Third, we recognize that the framework agreement is an inclusive and highly flexible cooperation and capacity building opportunity that countries can participate in regardless of their levels of development and digitalization. The estimates presented in the most recent regional trade facilitation report by the Asian Development Bank and ESCAP suggest that the framework agreement can help reduce trade costs by more than 20 percent in most of the region’s developing countries. Which makes it particularly important now when many bilateral or regional deals exclude some of the least developed countries. Initiatives such as the China-proposed Belt and Road Initiative can enhance regional integration and develop intra-regional trade. However, trade facilitation and crossborder paperless trade are essential to ensure that infrastructure benefits the entire region and further promotes cross-border electronic commerce.
I encourage all ESCAP member states to join the framework agreement as soon as possible and demonstrate the political will to promote cross-border paperless trade. There is no deadline for acceding to the agreement but doing so early on will ensure a seat at the table when the parties to the agreement formally discuss the implementation of priorities. The benefits of cross-border paperless trade multiply with the number of countries involved — the more countries on board, the larger the development gains for all.
It is time to accelerate the excellent bilateral and sub-regional paperless trade initiatives that have emerged across the Asia-Pacific region to build truly seamless and resilient supply chains as we recover better together in the post-COVID-19 era.